The EPF pension mess: should the Central Provident Fund Commissioner be sent to jail?

The government must force the EPFO to stop torturing pensioners, and misappropriating their funds, and to pay them the full pension they are due

Send the Central Provident Fund Commissioner to Jail?

Should the Central Provident Fund Commissioner be sent to jail? He is culpable of multiple offences: one, contempt of the Supreme Court, two, administering mental torture to about 17 lakh pension applicants who have applied for higher pension, under the Supreme Court ruling of 2022, and have been kept waiting endlessly, and, three, depriving the applicants of the interest due on the large amounts they have had to deposit with the Employees’ Provident Fund Organisation before their applications would be processed,

The last bit is most absurd in this land where a facility has been in operation since 2008, under which, while applying for shares in an Initial Public Offering, the applicant does not have to hand over the money required to pay for the number of shares applied, but can keep that amount blocked in her own account, earning interest for her. Only when the shares are allotted does the corresponding amount get withdrawn from the applicant’s account. Application Supported by Blocked Amount (ABSA) is something that the EPFO could have adopted, while asking applicants seeking higher pension to pay back to the EPF the funds they had been given, in order to qualify for the higher pension.

The pension mess is a creation of the government and the EPFO. In 1995, the government amended the EPFO laws to introduce a pension scheme for employees, to be funded out of the bulk of the employer’s contribution to the employee’s retirement benefit. The employer contributed 12% of the employees’ salary as retirement benefit, and out of that 8.33 percentage points of the salary would go towards pension. The pensionable salary limit was initially Rs 5,000, but progressively raised to Rs 6,500 and Rs 15,000.

The scheme, further, offered employees and employers the option to set aside for their retirement benefit a portion of the actual salary, when it was higher than the pensionable salary limit. The 8.33 per cent of the salary going to fund the pension corpus would naturally go up. But this option had to be exercised within a limited period.

Later, this facility was withdrawn and the pension corpus could be funded only up to a maximum of 8.33% of the pensionable salary limit. Employees challenged this in the courts. Employees of establishments that had received permission to manage their own provident funds outside the EPFO were not eligible to contribute a share of their actual salary, not limited by the pensionable salary ceiling. They also challenged this in the courts.

Different high courts ruled against the limitation and gave employees desirous of drawing a higher pension based on higher contribution to exercise that option. The EPFO challenged the high court verdicts. The Supreme Court in November 2022 ruled that the limit on eligibility was arbitrary and ordered a four-month window for people to exercise the option to make higher contribution and draw a higher pension.

Those who had retired, had been paying a proportion of their entire salary to the EPF but received pensions as if their salary had been the pensionable limit, had been paid back, on retirement, the bulk of the pension corpus, instead of being used to pay out pension. After the Supreme Court ruled that they were eligible for higher pension, the EPFO asked them to refund the excess funds they had received, to qualify for the higher pension.

Employees who exercised the option to draw a higher pension based on a share of the entire salary after the Supreme Court gave them a four-month window, and had been paying a proportion of the pensionable salary had to mobilise a lot of money to make good the shortfall in their contributions.

Many pensioners had to borrow money to make those payments to the EPFO. Those who borrowed from friends and family face increasing discomfiture when they encounter their creditors, some of whom need the money for their own urgent requirements. Those who borrowed the money on commercial terms are paying interest.

The Supreme Court had directed the EPFO to finish making all payments in eight months. In all, the EPFO received nearly 17.5 lakh applications. Employers, whose consent is required for the higher pension, have been sitting on three lakh odd applications. The EPF has 14 lakh completed applications, and has processed 8.47 lakh applications. Pension orders have been issued to a little over 16,000 retirees, two years after the Supreme Court order.

What are pensioners to do? They can file contempt cases against the EPFO, but only to see them buried in the mountain of cases already burdening the judicial system.

The main question is, what is the government doing about this situation?

It has ordered the EPFO to complete the job. Is that enough? Why not set up a temporary cell, staffed by a team from a reputable provider of IT and other business services, to handle the huge volume of applications, and finish off the work?

And, without delay, the government should refund the payments it has received from the applicants, and hold them in ABSA accounts of the pensioners, so that whenever the pension order is processed, the needed amounts can be recovered. The EPFO should pay interest on these amounts for the period it has been lying idle with them.

The pension EPF pays has no link to the return it generates on investing the corpus. It is based on a formula, that is, pensionable salary, multiplied by the period of service and divided by 70.

This must go. Pension must be paid out of the returns generated, just as the National Pension System does. In fact, EPF accounts should be transferred to the NPS, and the EPF wound up.